Taiwan Semiconductor Manufacturing Co (TSMC, 台積電), the world’s biggest contract chipmaker, yesterday raised capital spending by 53 percent for the year after posting its strongest quarterly earnings in nine months, aided by better-than-expected demand.
The unexpected announcement comes at a time when the economic outlook remains unclear.
During the quarter ending June 30, TSMC earned NT$24.44 billion (US$744 million), down 15 percent from NT$28.77 billion in the second quarter of last year, before global economic turmoil curtailed electronics demand.
On a quarterly basis, the figure was almost 16 times TSMC’s earnings of NT$1.56 billion in the first quarter.
Demand for its chips has improved significantly, with customers launching new products and restocking inventory, TSMC said in a statement, adding that the rebound in end-demand had affected a wide variety of electronics.
Predicting robust demand in certain economies, TSMC yesterday said it would spend US$2.3 billion on new equipment this year, up 53 percent from its previous estimate of US$1.5 billion and 22 percent from the US$1.89 billion it spent last year.
“The semiconductor industry has changed ... In the last nine months, we have under-estimated semiconductor and foundry industries,” TSMC chairman and chief executive Morris Chang (張忠謀) said yesterday at his first investor conference since he resumed the position of CEO last month.
Though the global economy may recover slowly, areas where penetration of electronic equipment is low could fuel industry growth, Chang said.
“The increase in capital spending reflects TSMC’s bullish outlook on industry recovery,” said Rick Hsu (徐稦成), an industry analyst at Nomura Securities Co Ltd (野村證券).
The increase could help the company meet demand for new products, including handset chips, as early as next year and computer processing units later on, Hsu said.
This year, overall semiconductor industry revenues are expected to fall 17 percent year-on-year, compared with an estimate of 20 percent contraction three months ago.
The foundry, or contract chip manufacturing, industry may only slightly underperform the overall semiconductor industry at minus 19 percent or 20 percent growth.
But next year the foundry industry may outperform the overall semiconductor industry, which is expected to grow 5 percent or 6 percent, Chang said.
TSMC said revenues could rise 20 percent this quarter to NT$90 billion from NT$74.2 billion in the second quarter, citing the gradual inventory buildup ahead of the typically strong third quarter.
“The growth has far exceeded my forecast,” said Kenneth Lee (李克揚), head of research at Fubon Securities Investment Services Co, Ltd (富邦投顧). Lee projected 5 percent growth.
TSMC’s growth forecast reflected its optimism for the semiconductor industry this year.
“Now I am much more upbeat — not only about the third quarter but also the fourth quarter — than three months or six months ago,” Chang said.
He said third-quarter demand would be close to the seasonal average of 9 percent quarterly growth in terms of shipments.
Credit Suisse analyst Randy Abrams said TSMC’s capacity boost indicated the company “is slanting more aggressively on capital spending to keep other foundries from picking off second source business.”
Shares of TSMC fell 0.88 percent to NT$56 yesterday, compared with a 0.8 percent decline on the benchmark TAIEX.